The financial crisis and economic downturn are likely to put upward pressure on government debt. The trouble is, according to OECD in Figures 2008, public debt (general government debt, which includes central and local government) had already risen quite sharply in the OECD as a whole since 1987, from 59% of GDP to 75% in 2007. Two decades ago, Belgium had the highest public debt, but today that position is filled by Japan, whose debt rose from below 60% to 170% of GDP. Italy’s debt has also shot above 100% of GDP in the past 20 years.
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The figure of 60% of GDP was one of a handful of targets European governments set at the start of the 1990s to prepare for economic and monetary union, and eventually the euro. In 2007 euro area public debt stood above that benchmark at 71%, though this represents a decline from over 80% in 1998. The figures for France and Germany have risen, from 50% to 71% and from 38% to 64%. US public debt stood slightly higher than 20 years ago, and Canada’s slightly lower. Several countries managed to reduce their public debt/GDP ratios quite significantly, including Australia, Belgium, Denmark, Ireland, the Netherlands, New Zealand and Spain. One country to be badly hit by the financial crisis was Iceland; its public debt had also eased in the last two decades to just 22% of GDP in 2007.
©OECD Observer No 270/271 December 2008-January 2009